Why Forex Is A Stellar Trading Choice http://www.netpicks.com/why-forex-is-a-stellar-choice/

When people find out you are a trader, the first question usually asked is

"what market do you trade? Stocks?"

Most people understand stock trading, less understand Futures trading but when I mention "Forex", a puzzled

expression crosses their brow and I am almost always forced to tell them that

it simply means currency trading - trading one currency for another.

I tell them that it is no different than when they exchange their home

currency for a trip to another country that uses a different denomination.

Again, more questions about how you make money doing that and the topic

of "pips" comes up in relation to account size and risk.

By then, their eyes gloss over and the topic changes to sports

When I first started trading, Forex was my product of choice. As time went

on, experience grew and other products such as the Futures market

came into play.

I think currency trading is a great market for those entering the trading arena and I also think the longer time

frame charts is the place to start.

The number of $3 trillion being traded per day is a little misleading. As

opposed to other markets, there is no centralized exchange in the currency market. Matter of fact, you could say

that many of the Forex dealers actually run their own exchanges, with their

own books, with their own positions.

I don't want to burden this article with a rundown of their entire setup and

how it affects trading but it is important to know that the volume

traded that is often stated is not truly accurate.

The fact is that dealers are net long/net short and they must hedge

the risk off to another exchange. Most of this "volume" is simply risk being

transferred from one tier to the next.

The important note is that this $3 trillion has a substantial makeup of

offsetting risk. Don't be swayed by the big numbers as a selling feature.

The big draw to trading currency is that anybody can start with a small trading account. You do not need to start with a $10 000 account and the truth is, with some brokers, you can

start with less than $100.

Of course, don't expect a windfall trading that sized account but it does help you get your feet wet. I started with more but it was nothing near what I would have needed to trade

crude oil, gold or a host of other vehicles.

SLIPPAGE. In some markets, you can expect slippage as you wait to close

out a position and for someone to take the other side of your trade.

In currency trading, opening and closing a trade is not really an issue for the levels many retail traders trade at.

Unless you are trading in times of extreme volatility like during the NFP

release, you can get in and out at your desired price as the broker takes the

trade.

Tools for trading are important and most brokers offer charting packages

and even news feeds to their customers. While some charting

packages can run you over $200 a month, you can grab a charting

package, usually Metatrader, directly from your broker.

These charts are perfect for traders who trade pure price action and those that need a ton of indicators on their

charts.

If I fire up a free platform like Metatrader, there are indicators I have

never even heard of. The issue with the selection is it does tempt you to

find the "perfect" indicator and setting to help you capitalize on trading

opportunities.

Before long, you've become so involved in finding an indicator

combination that you've wasted the time where you could be testing and

trading a simple trading system or one that has already been tested and

proven in the markets.

Interest rates are very important in currency trading. The great news is

that you can even make money on the differential of the interest rates for the currencies! When you sell a currency

with a low rate and buy the higher rated currency, you pocket the

difference.

In this example, say I want to trade the AUDUSD currency pair long:

AUDUSD Interest Rate: 4.5%

USD Interest Rate: .5%

I would sell the USD and pay .5% in interest but make 4.5% on the AUD which leaves

me net 4%.

As a matter of fact, this currency pairing made up a nice bulk of my

trading income in earlier years and the interest differential was icing on the

cake.

You can really only benefit from this differential during longer term plays which is why a good swing trading strategy is something you should

consider.

There's been so much hype around Forex that a new industry popped up

that catered to those seeking easy riches but never delivered on the

promise.

Essentially you download an "EA", usually for Metatrader, and it would

trade your account when certain conditions occurred in the market.

The coders of these programs made easy money as marketers promoted these non-stop for years. There was

never a shortage of buyers.

There was a shortage of successful traders though as the hype was just

that - hype

Wall Street pays top dollar for the best minds, the best programmers, and

their job is to produce these types of computerized trading systems. The average Joe/Jane Public should have known that paying $300 for a EA was

just a disaster waiting to happen.

If you want to make money in the markets or at least have a fighting chance, look into reputable trader

training companies that can help you get started on the right path.

Why Forex?

Low initial deposit

Free trading tools

Low risk of being "locked" into a trade

Capitalize on interest rate differentials

These are the reasons I approached currency trading as my initial product but I intentionally left out the method I used to trade it. There are so many

forums that talk about Forex and even have strategies that you can try.

The problem I found is that while there is some decent information on trading forums, it does seem that people with something to prove litter the boards. They are always ready to spout how great they are and have no problem

ridiculing other traders.

I think that forums have the potential to discourage and misinform people to the extent they give up or go broke. As a budding trader, you can go it alone

or join up with a proven company that is in the business of educating traders.

One caveat: most of these companies are stuffed with educators and not

traders. Ensure that you are dealing with people that are in the markets a

majority of the time.

Even better, find a company where the coaching staff are diverse in the

markets they trade.